exv10w1



 





Exhibit 10.1




May 17, 2003




Don Mundo

Chief Financial Officer

Teknik Digital Arts

7377 E. Doubletree Ranch Rd.

Scottsdale, AZ 85258



Re: Binding Letter of Intent for Mystic Chat Teaming Agreement




Dear Don:




Following up on the recent conversations between Teknik Digital Arts (“Teknik”)
and Quicksilver Software, Inc. (“Quicksilver”), I am sending this binding
Letter of Intent to confirm the terms of our understanding regarding our joint
roles in developing the “Mystic High” (working title) mobile phone chat
software (“the Product”).



As we discussed, in order for us to be able to provide a deliverable by October
31, 2003, we need to expand the team and move into full production immediately,
which we can do as soon as we have a signature on this Letter of Intent.



Principal Business Terms




The following are the business terms upon which Teknik and Quicksilver are
willing to enter into this arrangement for services related to the Product,
under the terms of a full Teaming Agreement to be negotiated between the
parties:



Relationship:



Software development project to create a mobile phone chat
application, the Product, that can be offered through a number of cellular
phone service providers and can be used by the parties as a technological
base for future products. Full production will begin on May 23, 2003.



The parties intend to establish a long-term mutual product
development relationship for the Product and other products
which they may mutually choose to develop, Major management
decisions will be made by a small “Governing Board” comprised
of members from both organizations. Teknik will provide
financial backing for development costs and ongoing
maintenance; Quicksilver will provide technical expertise and
manpower. The parties will share all revenues derived from
the Product after Direct Expenses in an equitable percentage
as defined in this document.



Teknik shall own the resulting intellectual property.



This arrangement is commonly known as a “Teaming Agreement.”



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Teaming Details:



This section summarizes key details which will be more fully
defined by the Teaming Agreement:




	1.	 	“Net Revenues” will be computed via
the simple deduction of both Teknik’s and Quicksilver’s
“Direct Expenses” (both initial and ongoing) from gross
receipts received from the sale or licensing of the
Product.
	 
	2.	 	In the case of Teknik, its Direct
Expenses will Include costs of directly assigned
personnel and contractors (Corey Comstock, Sherri Cuono,
Bill Volk, etc.)
	 
	3.	 	Quicksilver will compute its Direct
Expenses using a fair and reasonable “direct labor
costing methodology” based on that used in U.S.
Government “cost plus fixed fee” contracts as recently
audited by the Defense Contract Audit Agency at
Quicksilver. This involves the use of an overhead
multiplier on direct labor cost of 72%.
	 
	4.	 	A separate Schedule of Allowable
Deductions for Teknik will be prepared which lists the
expenses to be considered Teknik’s Direct Expenses and
“Ongoing Expenses. Currently, this is expected to
include direct labor, capital equipment purchases, and
hosting costs.
	 
	5.	 	The parties have agreed to a 20-80
split of Net Revenues; Quicksilver will receive 20% and
Teknik 80%. Net Revenues are to be distributed to both
parties in the ratio above, unless mutually agreed
otherwise. This share also applies to any sale or
licensing revenues derived from the IP. Payments will
be made within 15 days of actual receipt of funds by
Teknik.
	 
	6.	 	In the event of a third party making
an offer to purchase either Teknik (as a whole) or the
Product, Teknik reserves the right to purchase all
future Quicksilver revenues from the Product for five
times average annual revenue (based on best year of
revenues) or one million dollars US ($1,000,000),
whichever is greater.
	 
	7.	 	More than one unique product may be
developed under this Letter of Intent and subsequent
Teaming Agreement. Each such project shall be treated
as a separate entity for accounting purposes, so that
expenses and revenues can be readily tracked, both for
ongoing development and for the potential sale or
licensing of the intellectual property. In particular,
this means that the Mystic Chat application and the
Mystic High Game application are considered to be
separate accounting entities, although both are intended
to be covered by the same Teaming Agreement.
	 
	8.	 	The Teaming Agreement contemplated
under this Letter of Intent is intended to be
nonexclusive for Teknik; Teknik may choose, at its




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	 	 	discretion, to engage in other mobile-phone product
development efforts which do not involve Quicksilver and
which are not directly competitive with The Product.
Quicksilver may also choose to engage in other
mobile-phone product development efforts, as long as they
are not directly competitive with The Product.
	 
	9.	 	The parties intend to form a
long-term relationship for the development and
maintenance of the Product and potential future
products. The Agreement will provide for the continued
participation of the parties in the maintenance and
long-term enhancement of the Product, as they deem
appropriate. The parties may decide, at the option of
the Governing Board, to continue developing future
products when an appropriate business plan is presented;
there is no requirement, however, that such continued
development take place.
	 
	10.	 	The Governing Board will consist of
three members: Don Mundo, John Skeel and William
Fisher. The goal is to create a small, focused advisory
group that can make product, production and expense
decisions quickly. If necessary, the Board may
establish committees made up of members of Teknik and
Quicksilver, as appropriate, but a majority of the three
core Board members will make the final determinations.
	 
	11.	 	Teknik shall be deemed the owner of
all IP developed for the Product or other products,
provided that the parties retain all IP rights to
existing IP incorporated into the Product (including,
but not limited to, the Quicksilver Tools). In
addition, Quicksilver shall be granted a license to use
non Product-specific technologies in other
non-competitive products on terms comparable to those
used in Quicksilver’s other commercial software
development efforts (see “Quicksilver Tools” definition
for reference).
	 
	12.	 	The parties intend to establish
criteria by which the ongoing viability of the project
can be evaluated. Although both parties intend to build
the product such that it will be profitable, it is
possible that it will fail to generate sufficient
revenues to justify its ongoing operation. In such a
situation, the Governing Board will evaluate the project
periodically and, if necessary, arrange for the orderly
shutdown of operations.





Production Plan:



Development of the Product will be completed in a
number of incremental stages in order to ensure the
earliest delivery of baseline functionality and
therefore ensure a faster return on the investment.
The first phase, previously authorized by a separate
agreement, is a one-month technical analysis effort
(fixed cost of $34,000), followed immediately by a
second phase involving approximately five calendar
months of main development work (cost $295,000).
This agreement authorizes this second phase. After



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these two initial phases are complete, the parties anticipate engaging in
continued maintenance of the Product.



Quicksilver
Obligations:



Quicksilver will be responsible for providing
technical design, programming, and technical project
management resources for the project.



Quicksilver will be responsible for setup of server hardware
and for the monthly maintenance of the system, costs for
which will be paid by Teknik.



The development team for the Product will include the
following key personnel, plus additional personnel as
appropriate:



Bill Snyder, Server Programmer

Mike Hershberg, Java Programmer

Nate Gross, Game Programmer

William Fisher, Technical Manager



Teknik
Obligations:



Teknik will provide to Quicksilver a current concept
document, user interface designs, artwork and any other
materials which Teknik believes are necessary to clearly
define the desired look and feel of the Product.



Not later than June 1, 2003 the support requirements from
AT&T (or other telco’s) will be determined by both parties.
Teknik will obtain these requirements in a timely manner to
meet the Product’s production requirements.



Final Product specifications will be mutually agreed between
the parties not later than the end of the first month of
production on June 23, 2003.



Not later than June 1, 2003 the parties will agree on product
testing services to be provided by Teknik.



As compensation for Quicksilver’s work on the Product, Teknik
shall compensate Quicksilver for its costs in accordance with
the Payment Schedule attached to this Letter as Exhibit A.
Teknik shall pay the initial installment of $30,000 upon
signing of this Letter, and shall pay Quicksilver upon
presentation and approval of each statement of work detailing
progress on the Product. The total agreed-upon cost of work
to be performed upon signing of this Letter is $295,000,
which shall only be modified upon written approval of the
Governing Board.



Teknik shall be responsible for all costs related to the
hosting of servers required to support the product, including
equipment cost, hosting fees, and ongoing maintenance
following the conclusion of production on the Product. The
parties currently anticipate a need for the purchase of one



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server unit for internal testing approximately at the end of
July (estimated cost $5,000), and additional units (in a
quantity to be determined by the Board) two months prior to
the first commercial deployment of the Product.



Teknik will also be responsible for any sales, marketing, and
customer technical support for the Product.



Technical
Requirements:



The Product will be designed for the J2ME operating
environment, with the intent of ensuring reasonable future
portability to other environments. The Product will not
operate on BREW or Symbian phones unless they support J2ME.



The Product will be designed for use in U.S. English only,
though the internal architecture should be such that future
support for other languages is not precluded.



Intellectual
Property Rights:



For purposes of ownership, the Product shall be deemed a
work-for-hire and, except as otherwise provided in this
section, all right, title and interest to the Product,
including all intellectual property rights, shall belong
solely to Teknik.



A license to Quicksilver’s engine and related tools (the
“Quicksilver Tools”), including but not limited to the Chat
Engine software, will be included as part of Quicksilver’s
development fee for the Product. Quicksilver shall retain
all intellectual property rights to the Quicksilver Tools.
This includes both pre-existing tools and additional Tools
(non Product-specific components) created during the
Product’s development. Teknik shall have the right to
utilize the Quicksilver Tools solely in connection with the
Product. In the event that Teknik wishes to make use of the
Quicksilver Tools for other purposes, the parties shall agree
upon separate terms for licensing of these Tools.



Quicksilver will be providing specific proprietary software,
the Chat Engine and certain portions of the Quicksilver
Tools, that will be included in the product for no additional
charge. This software shall remain the property of
Quicksilver and Teknik shall be granted a license to use this
software in conjunction with the Product.



The MNI/MNA software is already owned by Teknik, and
Quicksilver’s portion is to be included in the Product at no
additional charge. The ownership of this software is covered
by a separate agreement between the parties.



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Confidentiality:



The contents of this Letter shall be subject to the terms of
the pre-existing Mutual Confidentiality Agreement signed by the parties
and shall be incorporated into the final agreement by reference.



This Letter constitutes the entire agreement between the parties with respect
to the Product and supersedes all prior or contemporaneous oral or written
agreements. This Letter may not be assigned or amended except by a written
instrument signed by authorized representatives of both parties. This Letter
does not grant any licenses between the parties, nor does it create any
relationship of agency or representation between the parties. This Letter
shall be governed by and construed in accordance with the laws of the State of
California covering agreements made and to be performed in that State, without
regard to principles of conflict of laws.



Agreed by:



	 	 	 
	


	 	

	Signed

	 	Signed
	 
	 	 
	William C. Fisher
	 	 
	


	 	

	Name

	 	Name
	 
	 	 
	President




	 	



	Title

	 	Title
	 
	 	 
	Quicksilver Software, Inc.



	 	Teknik Digital Arts



	Organization

	 	Organization
	 
	 	 
	


	 	

	Date

	 	Date







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Exhibit A




Payment Schedule: Production Phase




     Teknik agrees to pay Quicksilver in accordance with the following Payment
Schedule:



	 	 	 	 	 	 	 	 	 	 	 
	#
	 	Title
	 	Date
	 	Amount
	 	Deliverable Description

	1
	 	Startup	 	5/22/03	 	$	30,000	 	 	Project Startup
	2
	 	Design Complete	 	6/15/03	 	 	40,000	 	 	Design Documentation, Including:
	 
	 	 	 	 	 	 	 	 	 	-Gameplay Design Document
	 
	 	 	 	 	 	 	 	 	 	-Technical Design Document
	 
	 	 	 	 	 	 	 	 	 	-Updated Milestone List, with Production milestone details
	3
	 	Production 1	 	7/15/03	 	 	40,000	 	 	First Production deliverable;
	 
	 	 	 	 	 	 	 	 	 	details TBD during Design Phase
	4
	 	Production 2	 	8/15/03	 	 	45,000	 	 	Second Production deliverable;
	 
	 	 	 	 	 	 	 	 	 	details TBD during Design Phase
	5
	 	First Playable	 	9/15/03	 	 	45,000	 	 	First Playable Release: all
	 
	 	 	 	 	 	 	 	 	 	primary functionality
	 
	 	 	 	 	 	 	 	 	 	implemented.  Known bugs may
	 
	 	 	 	 	 	 	 	 	 	cause crashes, and not all
	 
	 	 	 	 	 	 	 	 	 	assets will be incorporated.
	6
	 	Beta	 	10/15/03	 	 	45,000	 	 	Beta Release: all functionality
	 
	 	 	 	 	 	 	 	 	 	implemented and ready for
	 
	 	 	 	 	 	 	 	 	 	quality assurance testing.
	 
	 	 	 	 	 	 	 	 	 	Final or placeholder versions
	 
	 	 	 	 	 	 	 	 	 	of all critical assets
	 
	 	 	 	 	 	 	 	 	 	incorporated.
	7
	 	Final	 	10/31/03	 	 	25,000	 	 	Final Release: same as Beta,
	 
	 	 	 	 	 	 	 	 	 	plus any aesthetic changes or
	 
	 	 	 	 	 	 	 	 	 	final bug fixes agreed upon by
	 
	 	 	 	 	 	 	 	 	 	the parties as essential for
	 
	 	 	 	 	 	 	 	 	 	release.
	 
	 	 	 	On Final Acceptance	 	 	25,000	 	 	Final Acceptance by Teknik.
	 	 		 		 	 	
	 	 	
	 
	 	 	 	 	 	$	295,000	 	 	 








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Exhibit B




Statement of Work: Production Phase




The core feature set of the main Mystic Chat application has been outlined in
detail by the parties previously and will be adjusted, if necessary, during the
first month of Production (May 22 to June 22). The Board will sign off an the
final feature set at the end of this time period.



Key components currently planned to be in the product are as follows:





	 	 	Adaptive Input Module

Core J2ME Engine and Shell Application

Scripting Engine, Quicksilver Tasks

Authentication Module

Pictogram Selection Module

Avatar Display and Control Module

WhoAmI Screen

Buddy List Screen

Message Screen

One-on-One Chat Screen

Multiuser Chat Screen

Simple Maze Game




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EXHIBIT C




QUICKSILVER TOOLS




     1. Quicksilver’s Tools



          1.01 Definition of “Quicksilver Tools”. The Quicksilver Tools consist of
certain asset editing/compiling tools, data formats or compression methods,
format conversion tools, 2D and 3D graphics and animation routines, artificial
intelligence, sound/music and interface routines and the software architecture
into which they are integrated, together with artificial intelligence
methodologies, gameplay representation methodologies, and programming practices
(the “Quicksilver Tools”), which have been developed or are now being developed
by Quicksilver and/or its contractors, and which will be included in or used in
the creation of the Product in order to expedite its development. Teknik
understands that (i) the Quicksilver Tools consist of internal portions of
program code which provide the overall structure for the code or which instruct
the computer to display any image, reproduce any sound, or manipulate any data
which it may have in a particular portion of computer memory in a particular
fashion; (ii) enhancements made to the Quicksilver Tools in the course of
development of the Work are included in the definition of Quicksilver Tools;
and (iii) the Quicksilver Tools are now or will be included in this manner by
Quicksilver in other works. Quicksilver reserves all rights to the Quicksilver
Tools not explicitly granted to Teknik in this Agreement. For the purposes of
this Section 1.01, the Quicksilver Tools include but are not limited to:



                    (a) Any code which interfaces directly with the operating system (e.g.,
Windows 95 or MacOS) or the hardware, and any code which requires the inclusion
of header files specific to a given operating system or hardware platform; and



                    (b) Any data type designed to support such code which interfaces directly
with the operating system or the hardware (all elements defined in this
paragraph together comprising the “System-Specific Data”); and



                    (c) Any code designed solely to cause the display, transmission, or
manipulation of System-Specific Data, e.g. various network-related operations;
and



                    (d) All artwork, sounds, text, 3D-model “assets” (and compiled variants of
same) produced by Quicksilver Which are not specific to the Work, e.g.
Quicksilver logo and related animation sequences; and



                    (e) Dialog box layouts, user interface designs, and code designed solely
to support Quicksilver Tools user interlace features which are not specific to
any game, e.g. generic network lobby services or operating system option
selection; and



                    (f) Internal logic such as generic frameworks for artificial intelligence,
game character modeling, gameplay implementation, asset management, and plot
flow, e.g., hierarchical decision making code for game strategy planning or
code supporting various levels of emotional intensity in character speech; and



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	(g)

	 	Specific generic functions common to
most typical software titles,
 e.g., Memory management,

Timing/scheduling infrastructure (thinking, threads),

User inputs (keyboard, mouse, joystick, etc.),

Rendering 2D or voxel sprites, text, primitives (all generic imaging

tasks),

Texture mapping, lighting, clipping, transforms and other 3D
 engine
primitives,

Shape algebra,

Asset loading and tracking, and “WAD” file operations,

Sound/music playback,

Operating system “glue” code,

File Input/Output,

Network layer (packet transport),

Multiplayer libraries,

Math libraries,

String package, and

Debug support.
	 
	 	 
	(h)

	 	Support tools used in the creation of the Work, e.g.

Macromedia Director data file reader

Excel spreadsheet data file reader

Custom exporters for 3D modeling tools

Voxel “tank” renderer

Testing frameworks for software modules

Preprocessors and related tool performance enhancers







          1.02 Definition and Use of “Tool Folders”. Quicksilver shall place all
elements of the Work to which the terms of Section 1.01 of this Exhibit apply,
including but not limited to source code, object code, appropriate design notes
and documentation, header files, libraries, and audiovisual resources, into a
folder or folders in its source code control system which are specifically
designated only for such elements (the “Tool Folders”). The presence of a
given element in a Tool Folder at the time of delivery of the final source code
for the product to Teknik shall be deemed sufficient notice from Quicksilver to
Teknik that the given element is a part of the Quicksilver Tools for purposes
of this Agreement, provided the element otherwise falls within the definition
of Quicksilver Tools.



2. Teknik’s Rights




          2.01 Definition of “Teknik Property”. The Teknik Property consists of all
elements of the Work which are game-specific, as defined in this Exhibit (the
“Teknik Property”). For the purposes of this Section 2.01, the Teknik Property
includes but is not limited to:



                    (a) Any data type or code specific to a game, e.g., data structures
representing game unit characteristics, combat characteristics, and the like
(all elements defined in this paragraph together comprising the “Game-Specific
Data”); and



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                    (b) Any code making direct reference to such types or code; and



                    (c) Any code designed solely to cause the display, transmission, or
manipulation of Game-Specific Data, e.g., the logic underlying the display of
player scores and timing data; and



                    (d) Any code supplied by Teknik for inclusion, whether developed by Teknik
or a third party; and



                    (e) All artwork, sounds, text, 3D-model “assets” (and compiled variants of
same) produced by Teknik for inclusion in the Work; and



                    (f) Dialog box layouts, user interface designs, and code designed solely
to support these specific implementations of the user interface; and



                    (g) Internal logic such as rule sets for artificial intelligence, game
character modeling, plot flow, and scoring specifically related to the Work;
and



                    (h) Any code designed solely to implement character motion/appearance
planning, e.g., starship navigation and motion calculations.



          2.02 Definition and Use of “Teknik Folders”. Quicksilver shall place all
elements of the Work to which the terms of Section 2.01 of this Exhibit apply,
including but not limited to source code, object code, appropriate design notes
and documentation, header files, libraries, and audiovisual resources, into a
folder or folders in its source code control system which are specifically
designated only for such elements (the “Teknik Folders”). The presence of a
given element in a Teknik Folder at the time of delivery of the final source
code for the product to Teknik shall be deemed sufficient notice from
Quicksilver to Teknik that the given element is a part of the Teknik Property
for purposes of this Agreement, provided the element otherwise falls within the
definition of Teknik Property.




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